If you’ve ever been interested in fundraising your startup, you’ve probably heard of an Initial Exchange Offering, or IEO. IEOs are becoming more popular than ICOs and are considered the next stage in the evolution. However, the concept hasn’t crawled out of its crib yet, and many people are confused about its reliability and benefits. Today, we’ve decided to have a closer look into this matter and present you with a thorough list of pros and cons for Initial Exchange Offerings.
What is an IEO?
An Initial Exchange Offering, similarly to an ICO, is a crypto transaction between developers and investors. However, IEOs are conducted on an exchange platform where it acts as a third-party on behalf of start-ups. But does a middleman mean more confusion, a longer process, and less reliability? Quite the contrary, actually.
Project developers send their tokens to an exchange platform of their choice. The IEO then does the donkey work—raising funds. This step is particularly beneficial for investors as they are presented with only solid offers, and this way, they avoid scams and frauds, which is a big issue with ICO.
Once the token gets approved by the exchange platform, it requires a developer to pay a listing fee and a percentage from the sale. That being done, the token is listed on the platform and visible to investors, who can pay for the ones they’re interested in. The entire transaction takes place on the platform, which ensures high security and a smoother process.
As a matter of fact, all three parties benefit from Initial Exchange Offerings. The developer gets listed and has access to various investors; investors are presented with reliable, scam- and fraud-free projects; and the platform itself gets a percentage of sales and is paid a listing fee by developers.
Initial Exchange Offering Pros
The process of buying and selling tokens with an IEO seems to be easier and more credible than via ICO. But the list of advantages does not stop there. What other benefits does an Initial Exchange Offering bring? We divided all the pros into three sections: for developers, for investors, and for the platform.
LISTING – Developers, once approved, get instant access to investors who are looking to buy tokens. Finding an investor willing to fund your start-up is one of the most complicated and hardest steps. IEOs cut down developers’ efforts and allow both sides to find each other.
REDUCED COST – Getting tokens listed on the exchange platform can take a while, but it’s not as expensive as an ICO. ICO costs often exceed thousands of dollars, sometimes hitting millions. Developers still have to pay a listing fee for an IEO, but it’s likely to be much lower.
MARKETING – Appearing on the exchange platform cuts down the marketing costs as the project gets listed and can be viewed by the exchange’s user base.
TIME-SAVER – An IEO also allows developers to focus on their project and make it perfect or update it, which saves them a lot of time and effort that would normally be spent on finding investors and advertising.
LESS RISK – All projects are thoroughly checked by the exchange platform, and scams or frauds are instantly rejected. This allows a risk-free transaction for investors. Additionally, the platform takes responsibility in case of any issues.
TIME-SAVER – Investors save a lot of time as they don’t need to search for start-ups across various platforms and place their money on each one of them. They go for one or two IEOs and allocate funds where applicable.
LISTING FEES – Experts from IBCGroup share that listing fees are particularly beneficial when a token doesn’t seem to be getting a lot of interest or is simply sold for a low price. This means that even if the project isn’t generating a lot of money, the exchange still receives money from the initial listing fee.
NEW POTENTIAL CLIENTS – Investors who are willing to fund projects are required to open an account on the platform, which gives the exchange a considerable advantage because it will receive key data for its own marketing efforts. This can lead to a long-term relationship with investors.
Initial Exchange Offering Cons
As much as we would like to focus on the pros solely, there are some cons that need to be mentioned as well so that anyone can make an informed decision. Fortunately, the list is short, and the benefits of IEO easily outrun the disadvantages.
KYC – The Know Your Customer approach has become a standard in many countries, including the US, to ensure safe transactions and anti-money laundering. However, a lot of investors find the process irritating because of the amount of time it takes. Almost all IEOs require KYC, so it can be a bit of inconvenience—but it’s worth it in the long-run.
TOKEN OWNERSHIP – Exchange platforms are in full control of users’ tokens, which means once they’re listed they become the property of the platform the user is using and the exchange acts on the user’s behalf. Also, in case of a security breach, all user tokens can be lost.
PRICE MANIPULATIONS – Another problem with IEOs is the high number of coins in a few people’s hands, which can lead to numerous price manipulations. This is even easier for big investors as they operate with huge amounts of money.
LIMITED OPTIONS – Currently, there are very few options for investors when it comes to exchange platforms.
The world of cryptocurrency is constantly changing, and new opportunities emerge regularly. IEOs are by far one of the most attractive options, despite the downsides. There are always things to consider whether you’re an investor or a developer looking for funds.
The future of Initial Exchange Offerings seems bright though. It’s hard to predict how it will evolve in the next year and beyond, but with such a great start, IEOs are likely to remain on the cryptocurrency market for a while, making the entire transaction safer, faster, and more reliable.
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